Dissolution of Partnership Test - 10

Section 48 is concerned with the settlement of accounts of the partners at the time of dissolution. In settling the accounts of a firm after dissolution, some rules shall, subject to agreement by the partners, be observed; for example: Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits.

As per the Section 49, where there are joint debts due from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of any partner shall he applied first in the payment of his separate debts, and the surplus (if any) in payment of the debts of the firm.

Section 44 of the Indian Partnership Act, 1932 states that at the suit of a partner, the Court may dissolve a firm.

Advertisement Suspense Account is the part of accumulated losses, therefore, like any other accumulated loss it should be transferred to Partners' Capital/current account debit side in the old profit sharing ratio of partners.

This is the basic rule of any business firm that first pay to the outsiders (firm’s debts) and then pay to the partners and other personal payments (if any).

At the time of dissolution firm must pay firm’s debt first and then to the partners i.e.
1.Creditors
2.Partner’s Loan
3.To Partners (Capital A/c balance)

Cash Account and Bank account should be merged at the time of dissolution and should not be prepared separately. Cash Account should be closed by transferring the balance of cash account to the bank account.

At the time of dissolution, all assets are to be transferred to the realization account at their actual value (Book value) and all provision given against the assets are to be transferred in the realization account opposite side.

Loan paid by Shyam should be paid first ( on priority basis) because he is not a partner. As per the rule, payment to the outsiders will be made first and then to the partners.

Section 48 is concerned with the settlement of accounts of the partners at the time of dissolution. In settling the accounts of a firm after dissolution, some rules shall, subject to agreement by the partners, be observed; for example: Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits.